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A P2P Real Estate Crowdfunding Comparison Guide

I have invested in a total of 125 individual transactions through various real estate crowdfunding platforms, with an average of $10,000 per investment. Almost two-thirds of these transactions have been fully completed (principal and interest) with very good monetary gains. Of the 80 or so completed deals, the average return has been slightly over 10%.

I got my start in early 2013 with Realty Mogul. Before long, I was researching and investing on several real estate investment platforms. I have evaluated more than 50 platforms (there are close to 200 real estate crowdfunding sites today) but ended up using about only a dozen.

I thought it would be beneficial to prospective investors if I compared the various platforms. In the real estate industry, a broker will prepare a comparative market analysis (CMA), or “comps,” to give a homeowner an idea how much their home is worth. For this comparison, I wanted to help prospective investors determine which real estate crowdfunding site was “worth” investing in. Not all of these platforms are equal, and not all of the investments on these sites are the same.

I’ve completed six deals on each of these sites. Meaning I’ve gone through the whole life cycle, from the initial investment to periodic payments, to the point where I finally closed out of the investment. None of these sites are flawless in their execution or portfolio offerings. I have had issues with one or more investments at each one of the sites. However, each entity above handled the situation differently (some better, some worse for the investor).

Let’s get started with the comparison.

Website Features, Menus and Options

How detailed is the website? And how easy is it to use? This might not sound like a big deal, but the more information a site provides, the more comfortable I feel about the company. The clear leader here is Fundrise. They provide a LOT of information, and each page helps investors drill deeper into their holdings. However, Fundrise has completely transitioned away from individual investments and has gone strictly with eREIT offerings.

Fundrise presents a wealth of information about every holding in its eREITs.

Sign-up Process

Patch of Land (PoL) has the smoothest process for signing up, transferring money and executing paperwork. PoL deals only with debt investments and has done a wonderful job streamlining their site so investors can get into investments quickly. The other sites take a little longer and have more paperwork to fill out.

Customer Service and Communication

The key here is how the companies provide updates on your investments. Most of them do a great job of providing timely information, but I have to give the edge to Realty Mogul, which I have worked with the longest and believe have done the best job to date. They have very good leadership, which should help them evolve in this category as they continue to grow. However, Realty Mogul is leading with their REIT product over individual investments.

Realty Mogul is a leader in the REIT space and is always a helpful resource.

Financial Backing

Each one of these real estate investment sites has had public money backing it, which I think is important to the potential longevity of the business. Although I do not know the private funding that may have been floated to these organizations, the public announcements on sites like Crowdfund Insider and Lend Academy provide valuable insights on who is backing whom in this marketplace. From my research, it looks like LendingHome has received the most financial backing from the public realm. Since this is a very competitive landscape, it’s important to see where the so-called “smart money” is going and whom they are backing.

LendingHome is a leader in the fix-and-flip marketplace, and the amount of financial funding it has received attests to its competence.

Fees for Investors

These sites need to make money, so fees, expenses, etc., should be expected. Some of them charge the investor, some charge the borrowers, and some do a combination of both. In my opinion, this category needs to be broken down into three separate categories:

Debt

Equity

REIT

Patch of Land provides the best value for investors on debt opportunities, since all of their investments are pre-vetted and curated, and there are no fees for the investor. The interest rates that are published at the outset are usually the rates you end up receiving.

Based on my experience, RealtyShares has very competitive fees for equity positions. These typically range from 1% to 2% annually.

Diversification or Types of Real Estate Opportunities

This category is broken down into three subdivisions:

Debt vs. Equity

Geography

Property Types

There are two main options for investors when they participate in a deal: debt or equity. An investor can invest in California, Florida, Maine and everywhere in between. I think investors need to diversify — not only by REI platform site but also by location — to achieve a well-rounded portfolio.

There is also a plethora of property types to invest in across this great country of ours, including retail, commercial, multi-family, hotel, self-storage, industrial and mobile homes.

Based on these factors, RealtyShares is the clear leader in this category.

Due Diligence and Vetting Process

Investors tend to hope that the companies have done their homework and that the information provided is enough to make an educated decision. Not all investments go as planned, but as long as the investor is informed of the potential risks, this will go a long way to building trust. Most of the sites I use provide a bevy of information on each investment opportunity. Many of them allow potential investors to ask questions regarding the investment prior to committing any funds.

Based on these criteria, Realty Shares gets the slight nod over their competitors. They turn away more deals than they put on their website, because they want to be conservative with their offerings.

RealtyShares puts every offering on its website through a strict vetting process.

Average Investment Returns

Investors need to know how much interest and principal is required and how long their money will be tied up. Many of these sites have a minimum of $5,000 to participate. The interest rate or internal rate of return is a major factor in determining where an investor will get the most “bang for his buck.” RealtyShares provides a sample investor return, which is extremely helpful for novice investors. Although receiving a higher return is important, higher returns come with more risk, so investors need to factor that in when contemplating each investment offering.

Out of all my investment platforms, I have made the highest percentage returns on Fundrise. However, as I alluded to earlier in this piece, Fundrise does NOT have any individual investments anymore. The eREIT may be the right choice for novice real estate investors since they have a very good track record and offer investment opportunities for accredited and non-accredited investors.

Fundrise has a proven track record that makes it an excellent choice for novice real estate investors.

Inventory or Opportunities to Invest

I usually scan each of the sites daily to see when new opportunities are available. Some of them have a predictable schedule, while others follow a random schedule.

Without a doubt, RealtyShares has had the largest inventory available on a weekly or monthly basis over the past year and a half. As an investor, it is comforting that a company is diligently putting opportunities in front of you so you can decide how and when to allocate funds for your next investment.

Performance — Estimated vs. Actual Returns

Each site provides the investor estimated returns on their money, with some variances depending on whether the deal is a debt or equity transaction. Some of the investments achieve higher returns than estimated, and some perform worse. I reviewed the 80 or so of my completed investments to see which companies were on target with their estimates, and Fundrise and RealtyShares have been closest, with Fundrise predicting slightly more accurately. However, I need to give RealtyShares the nod now since they continue to offer individual investment opportunities.

Average Score Compared to Its Peers

In the table below are the 10 performance indicators scored from 1 to 5, with 5 being best. The last column is the average of the 10 categories. (Note: To see the entire table, scroll to the right.)

Crowdfunding Site

Website Features, Menus & Options

Website Ease of Use for Investing or Paperwork

Customer Service & Communication of Ongoing Updates

Transparency of Process & Performance

Fees for Investors

Diversification or Types of Real Estate Opportunities

Due Diligence & Vetting Process

Average Investment Returns

Inventory or Opportunities to Invest

Performance: Estimated vs. Actual Returns

Average Score Compared to Peers

Crowdfunding Site

Fundrise

5

2

5

3

4

1

1

5

1

5

3.2

Fundrise

LendingHome

2

1

2

2

2

3

3

2

4

1

2.2

LendingHome

Patch of Land

1

5

1

1

3

4

2

3

3

3

2.6

Patch of Land

Realty Mogul

3

3

4

4

5

2

4

1

1

2

2.9

Realty Mogul

RealtyShares

4

4

3

5

1

5

5

4

5

4

4

RealtyShares

Summary

This review is a snapshot in time, and each investor may have a different experience with each of these platforms. I suspect the industry will continue to evolve as it matures, and there will be plenty more real estate investing sites for investors to review. All in all, my experience has been positive, and I will continue to invest in this platform.

(Editor’s Note: This guest article was written by Jack Reidy. Jack is a 20-year veteran of working for a technology value-added reseller (VAR), a part-time real estate broker and an avid alternative lender in the P2P marketplace. He lives in the suburbs of Chicago with his wife and two teenage daughters and can be followed on Twitter at @jackreidy83.)

There’s been a lot of coverage about crowdfunding and though it isn’t new, it got a nice shot in the arm in 2012 when Congress passed the JOBS Act. JOBS is actually an acronym for Jumpstart Our Business Startups. […]

Crowdfunding has become one of today’s hottest investing trends, with some of the biggest returns coming from the peer-to-peer (P2P) real estate lending marketplace. Although this trend is still relatively brand-new, it’s already made seismic shifts to the way investors profit from real estate debt, and new platforms seem to be springing up every day. […]

Peer-to-peer lending can be a great alternative investment. Here's how you can maximize your P2P returns without increasing your risk.

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SK

3 months 10 days ago

This article is not providing any information about the tax implications. For eg. if the investment is made outside my state of residency, do i have to pay state taxes where the investment property is located?

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Emily

3 months 17 days ago

Unfortunately, once again, this review is pretty much of only “accredited investors”. Honestly, why would anyone with that kind of money want to invest in the internet. Please review options for people who are not accredited investors.

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chris

9 months 25 days ago

Are all of these limited to ‘Accredited Investors’ as defined by the IRS ($200K min annual income / min $1MIL net worth)? What about PeerStreet in your comparison?

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